Magazine article Newsweek

To Bail Is to Fail: Stick with Stocks: Portfolio: Since 1926 the Market Has Returned an Annual Average of 11 Percent. and You Want T-Bills?

Magazine article Newsweek

To Bail Is to Fail: Stick with Stocks: Portfolio: Since 1926 the Market Has Returned an Annual Average of 11 Percent. and You Want T-Bills?

Article excerpt

Here's how the Federal Reserve describes the stock-market outlook: "Investment in capital equipment... has continued to decline. The erosion in current and prospective profitability, in combination with considerable uncertainty about the business outlook, seems likely to hold down capital spending going forward." Translation: it's time to bail. With investors sweating over continuing volatility, the natural temptation is to shift your money to bonds, T-bills or even certificates of deposit--anything but stocks.

Hot tip: don't move. Do nothing. Take a few deep breaths if you need to. Do not check on your portfolio. Do not look up gold prices. Do not try to figure out what zero-coupon bonds are. If you're truly investing in stocks--that is, if you're putting away money that you won't need for 10 years or longer--just keep doing what you're doing.

Over history, stocks have been the best place to grow your long-term savings, returning on average 11 percent annually since 1926, as measured by the S&P 500. There is, of course, volatility from year to year. Since 1965 the S&P 500 has fallen as much as 26 percent and risen as much as 38 percent. So don't put money you'll need in the next five years in the market--it's too risky in the short term. But the cost of keeping your long-term savings in fixed-income investments is just too great, especially when you're trying to beat inflation. On an investment of $30,000, what's the 30-year difference between earning 6 percent (from bonds or a CD) and 11 percent (from an S&P 500 Index fund)? …

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